Last Updated on Jul 19, 2023 by Anjali Chourasiya

Last week, the GST Council disheartened many gamers and gaming companies. It decided to levy a 28% tax on full value. This news blew many venture capitalists, sharks, and gamers off. So let us understand what’s the buzz all about. 

What’s Taxed? 

Controversies and outcry are multi-layered. Let us unpack them one by one. 

The categories attracting a tax of 28% involve betting. Be it online gaming, casinos or horse racing. 


The first argument – is how online gaming can be equated with casinos and horse trading. Here, we must remember the core component of these activities is betting. Online games that are played without any stakes involved will continue to fall into the 18% category. This is a major difference within the gaming segment. Betting or wagering activity already attracts a 28% tax or the ‘sin tax’; with this decision, the government has expanded the betting avenues.

However, there is another difference within online gaming involving stakes. There are two main categories: games of skills and games of chance. Examples of games of skills are rummy and poker, while Dream11 or any fantasy leagues are games of chance. Those with skills are generally considered legal, and those with a chance as illegal or sinful. Many experts have argued that the GST Council should have considered this distinction and levied a lower rate for the games of skills.

Judicial rigmarole 

Personally, I am not a gaming fan, but I believe the government must consider the distinction between games of skills and chances. However, I can assure you that if it differentiates between these types of games, then even fantasy league games (games of chance) will try to persuade courts that there is some sort of skill involved in such games. 

Or they might introduce a mixed version, where there will be some skill element attached, which will lead to a bunch of cases in the courts for a lower tax rate. Judicial fights over interpretation are not new in this country. We have seen cases like is Kitkat a biscuit or chocolate? Or should frozen parathas, khakhras and rotis be under the same category? 

So, considering the past and current experience, it might be wise for the government to treat all these games on par. However, the ideal way to deal with all these issues is to have a minimum number of tax rates (a maximum of two, in my opinion). Therefore, rationalisation of tax rates should be on the government’s cards to improve the ease of doing business.

This was about to happen

It is surprising to me to see the kind of outrage by different bodies and organisations. Last year, we saw a tax on cryptocurrency in the budget. The exponential rise in the prices and trade of cryptos and NFTs in India preceded the tax. You may crawl back in time and remember how many crypto ads you saw on TV and YouTube during the period 2020-2022. Regulating and taxing them, therefore, can be seen as a natural fallout. 

Like the cryptos, we have also seen a tax exemption limit for long-term capital gains tax (under Income Tax). Earlier, there was no long-term capital gains tax on the sale of equity shares or equity mutual funds. But in the year 2018, the government capped this unlimited exemption to Rs. 1 lakh. This step has helped the government garner tax during the share market boom post-Covid.

In the last couple of years, we have seen a proliferation of gaming ads – be it rummy, poker or fantasy league. Many A-list celebrities endorsed such products. The revenues of Dream11 grew multifold in these years. Gaming has become one of the growing past time or even a career option for many. The share of the time devoted to gaming has increased, as around 45% of mobile users got introduced to gaming only during the pandemic. 

Of the newer trends of the post-Covid world, this was one of the areas untouched by an additional tax. Therefore, looking at progression, I believe this was about to happen. It was a question of ‘when’ rather than ‘if’.

The Extractive State

The default nature of the Indian state is extractive. It is observed quite often that the government does not leave any stone unturned in taxing people and companies if it smells profits or gains from one or the other source. We have a classic example of Vodafone’s retrospective taxation. 

In the current context, it is more important to highlight the need for additional revenue. The disinvestment targets will not be met, probable recession in the developed countries can affect exports and exporting sectors, and it has already reduced corporate taxes and raising them again will send mixed signals. Moreover, we are heading towards the general elections and increasing personal income tax rates will be a recipe for problems, if not a big disaster.

Even while taxing online games, the government has chosen to tax the full amount of the reward. There are two schools of thought – one says that the tax must be levied on the full value of the reward (also followed in Germany, Portugal, and Poland), while others feel that the tax must be levied on the Gross Gaming Revenue (GGR) or the platform fees (also followed in UK, Singapore and Australia). 

There’s merit in both cases, but the council decided to levy it on the full value. Here the logic is simple. If the tax is levied on, say, Rs. 1 lakh, the reward money, instead of, say, Rs. 5,000, the platform fee, the tax revenue for the government will be higher in the former case. This highlights what I said at the beginning of this section – ‘The default nature of the Indian state is extractive’.

Therefore, the decision does not appear very surprising if we look through this prism. Instead, we may expect more decisions like this again. 

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